Forex: EUR/USD - How long till loyal buyers take it to 1.38/1.40?

The firm uptrend in the Euro continues to be nothing short of stunning, with attempts to challenge higher prices greeted with an army of committed buyers on every shallow pullback.

The uneventful NFP jobs data posed no disturbance to the pair's healthy bullish tone last Friday. As widely anticipated, the actual jobs numbers came close to projections, causing subdued moves in the U.S. dollar overall. The creation of jobs stood at +157k from an upward revision to 196k the prior month. The jobless rate saw an increase to 7.9% from 7.8%.

So far, the technicals in EUR/USD are still screaming 'buy me on dips', a view shared by many markets commentators like Marc Chandler, Global Head of Currency Strategy at BBH, noting that the main drivers of the Forex market have strengthened in favour of the Euro, which implies that "current trends, especially euro strength are likely to persist, reinforcing the behavior of buying EUR on pullbacks and selling into bounces of other currencies."

Marc identifies two main drivers in the EUR/USD: "First, the tightening of monetary conditions in the euro area, amid some evidence that the regional economy is recovering and the German locomotive itself finding better traction. Secondly, the Federal Reserve remains committed to buying $85 bln of long-term securities a month. This likely to persist through the year."

According to Sebastien Galy, currency strategist at Societe Generale, the outlook of growth "is neither too hot nor too cold keeping the Fed on hold and UST 10 year yield still well contained in their current regime" he says. He notes that a possible breakdown of this relationship "will eventually happen in H2", but till then, current environment "still supports the risk on to keep buying dips on EUR/USD, with the amusing quote of taking advantatge of conditions to "crush the eurusd up against the wall."

Looking forward, trader's minds will be occupied with the ECB monetary policy meeting later this week. According to Kathy Lien, co-founder at BK Asset Management, "there is a potential for some profit taking in the EUR/USD ahead of the event."

Kathy adds: "Monetary policy is expected to remain unchanged but everyone will be listening carefully for Draghi's comments on the currency. At 1.34, the ECB was comfortable with the level of the euro but do they feel the same way after the currency hit a high of 1.37? We believe that the central bank is getting fidgety but the pain threshold should be between 1.38 and 1.40."

While agreeing with Kathy's view on the potential ECB risk event being a catalyst for possible profit-taking, since there is still three days left of full trading until Thursday's ECB meeting, technicals should continue to govern prices in the near term.

According to Ivan Delgado, head of Asian analysts at FXstreet.com: "In order for bears to take short term control, 1.3630 should be taken out, potentially leading to 1.3585, where plenty of buyers were parked after the initial USD spike post NFP. Only break below 1.3535, Jan 31 swing low, may disrupt the rally on the Euro."

The analyst tips, on the contrary, that a break into new trend highs would imply "further upside resolution to 1.38, next goal for buyers." Above that level, and bearing in mind the relentless bullish momentum, "1.40 will surely be the next focus" Ivan said.

According to Mansoor Mohi-uddin, Managing Director of Foreign Exchange Strategy at UBS Macro Research: “The euro continues to benefit across the board from the unwinding of last year's short positions,” the analyst says, who adds: “Given the likely dovishness of Japan's, Britain's and Australia's central banks, EURJPY at 1.26, EURGBP at 0.87 and EURAUD at 131 are likely to be bought on dips still for now. But euro bulls also need to be wary of increased verbal interventions,” Mr. Mohi-uddin suggests.

Session Recap: Euro corrects lower; Aussie leads despite poor data

It has been a very slow Asian session, with all currencies pretty much at the same levels where they started earlier. More gloomy data from Australian ANZ jobs indicator and building permits caused some pressure on the Aussie, but the currency managed to stabilize the rate to become the marginal winner. The Euro was the laggard.